One area of fallout from the Supreme Court 2018 Wayfair decision has been the changes in nexus rules imposed by different states, catching many small businesses unaware of their liability under the new rules.
The Streamlined Sales Tax Governing Board, or SST, has been working on a measure that would encourage small businesses to come forward and become compliant with their sales tax obligations in the various states in which they do business.
Under the proposal, the new SST Voluntary Disclosure Program would limit back taxes for remote sellers. Sellers would need to register with participating SST states and owe up to two years of back taxes, with no penalties or late filing fees. The SST Governing Board voted for a workgroup to develop the initiative.
"The measure has not been approved yet," said Scott Peterson, vice president of U.S. tax policy and government relations at Avalara, and a former executive director of the Streamlined Sales Tax Governing Board.
"There was an in-person SST meeting in Charlotte last month, and a call last week, where some debate took place," he said. "The accounting/legal profession has communicated to the states that there are a lot of people not collecting sales tax because of fear of penalties if they come forward, so sellers prefer to not take the risk of coming out into the open. From the SST perspective, it's always cheaper for someone to come forward and pay some back taxes, and it's better for the state as well. The proposal has a two-year lookback."
The current version of the SST proposal won't be on the table until January, according to Peterson.
"For a state to join SST, that state has to offer a one-year amnesty to sellers," he said. "But that would be replaced by this new voluntary disclosure proposal with a two-year lookback. States vary in their look-back periods. It's typically no further than six years but not less than three years. The proposed two-year lookback period is far less than any state is now using, so this measure could certainly cast a wider net and save sellers back taxes — especially when a seller has not actually collected the sales tax in question."
Every state now has a bargaining process where sellers can come forward with representation to make a deal — so the new proposal shortcuts that ad hoc process, according to Peterson.
"Some state processes today are codified in state law, and all of the SST states are going back to review their current law to determine the feasibility of making changes," he said.
It is conceivable some states won't be able to make changes in their laws or otherwise participate in the new proposal, Peterson observed: "It will very likely end up as a patchwork of adoption for SST states. Some states will be able to make changes to the interest piece or penalty piece, rather than adopting the full-blown SST proposal."
But Peterson expects general acceptance of the proposal by most SST states.
"There's a uniform belief that finding unlicensed retailers is very expensive for states," he said. "It's a waste of time, and states also think there are many more retailers out there not collecting and remitting sales tax. So the new proposal could help rein in scofflaw sellers. It's a worthy accommodation on the part of participating states to ultimately collect more revenue."
